原文见 http://blog.wenxuecity.com/blogview.php?date=200711&postID=9223
I was bearish in past few weeks and wait the second shoe off. Because of that, I became unwelcome minority. But I still insist my view. Even I am a long term bull, but short term I just can not convince myself to get into the market when so many bulls out there and market sentiment at top. In past one week, we finally saw the second shoe dropping off. It had a panic sell yesterday after market due to dollar devalue and CSCO's ER forecast not as rosy as expected
Now I am much more bullish than one week ago. This is what market should do to adjust position before big run.
Conclusion first:
My previous prediction (two weeks ago) is still hold true about market correction: 7% to 8% from the top.
I don't think market will go much lower from here. So here are the numbers from TA and FA point of view:
1. DOW should stay above 13000 and range should be 13000 to 13200.
2. S&P should stay above 1450 (Worst case it may test 1430 in one day basis)
3. Nas should stay above 2700 ( Worst case it may test 2670 in one day basis)
4. RUT should stay above 750 ( Worst case it may test 740 in one day basis)
Why I am more bullish than before?
I think the root of current correction is from August. This is the second shoe drop due to the same issues, subprime and credit crisis, but we are now in a much better position than three months ago.
1. Fed has 0.75 rate cut in Fed fund rate and 1 full point cut in Fed discount rate. But August we don't have that.
2. The future view of Financial world is more clear than last time and financial institutions are healthier.
The Big Banks and Investment Institutions now start to face the music, start to write down loss due to subprime and CDx woe. We are now having some numbers, and August we don't have that. we only know there is a black hole and no one knows the bottom.
Although it is still very difficult to estimate the total loss, but we could have a better estimate for that. This is plus for the market. The total loss so far from all Big guys including Merrill Lynch, CITI group, Morgan Stanly, BSC,GS, HSBC, etc are now over 50 Billions. According that the total loss could range btw 200 to 250 Billion. These will happen in years to come.
3. Economy now is still on track. Two important numbers reported yesterday are very positive: Productivity raise 4.9% higher than 3.2 expected, and Unit Labor cost -0.2% much lower than expected 1.0%. So we have less inflation pressure. Those gives FED a extra room to cut rate when it's necessary. Fed still can cut discount window rate from current level without trigged further dollar devalue.
4. Q3 ER reports most beat estimation. High tech companies are continuously get some sign of life.
5. Q3 GDP is also higher than expected. It largely offset the loss due to housing price decline.
6. Setiment number come down a quite bit from the top, and VIX reaches extreme area once again.
So we are in the much better position than August. The market will not drop lower than last time.
and above numbers are based on solid support.
Yesterday's panic sell after market is over shooting in down side due to fear of dollar devalue and renewed fear of financial crisis due to big wrote down.
It will past, and we will see year end rally after this one. I think we could see new highs by end of year or early next year.
So don't panic, don't short. You will get hurt.
Yes, there are a lot of problems unsolved, but we are getting more clear view of the future than before. And things is getting better.
This correction create a good opportunity to get into the market if you missed last time.
What sectors we should get in after this correction?
Tech, all base materials sectors ( Oil and GLD still has room to run but be careful)
China ADRs. Renewable energy.
Tech: Goog, AAPL, RIMM will continue outperform others.
China's A share pull back is actually good for ADRs. For long term view, I am still bull to China's market. ( Even I don't trade A share, but it has impact to world market) As long as China GDP still keep 10% growth rate, China's market will perform well. It will has new high by year end, and will reach 8000 next year. Buy some China ETFs or Asia emerging market fund to participate this great bull.
Believe it or not, there are some valued stocks in financial group, to name a few: BAC, JPM, WFC those are not involved in subprime trouble deeply as others but be dragged down along with the sector. They will perform better when market get stabilized. GS has same bad asset as others but it has been short subprime loan since June and got huge gain in trading side. It is outstanding in damage control. It will outperform others when market start to recover.
In Sun Power sector, whole sector already be rich valued. FSLR good ER trigged another wave of madness. But LDK is under value and getting ready to run in next few weeks.
Nile once again proved it's advantage of business model, and it will continuously perform well.
Happy Trading.